Bundle Whole-Farm Policies

Income Insurance Gets Second Shot

When it rains, it pours. The frequency of rainfall characterized as a very heavy event (heaviest 1% in a given time span) has increased from 1858 to 2012. (DTN/The Progressive Farmer graphic)

By Marcia Zarley TaylorDTN Executive Editor

HADDONFIELD, N.J. (DTN) -- Whole-farm income insurance has long been the stepchild of federal crop insurance plans, attracting only about 1,000 policies nationwide, or 0.1% of all policies sold last season. But pressure on farmers to economize and recent enhancements designed to appeal to specialty crop and livestock producers could breathe new life into the offering in 2016.

Diversified Indiana farmer Gordon Millar is giving Whole Farm Revenue Protection a serious look for the first time ever. Millar, of New Carlisle, Indiana, has largely relied on investments in irrigation and tiling to guarantee better yields on his seed corn, commercial corn, sod and vegetable crops most years. The instances where an irrigator would have triggered a yield claim were few and far between, he said, so it made more sense for him to self-insure and keep his cash flow and liquidity levels high.

Aside from a catastrophic policy on his field tomatoes, supplemented with a yield rider offered by his tomato processor to cover hail and shore up yield guarantees to 80% of normal, he rarely bothered with crop insurance offerings.

"We irrigate, we have three soil types, and we grow our best commodities on our well-drained soil. So the number of times we'd have had a claim in the past wasn't substantial enough to justify the premiums," Millar said.

What's changed his mind are attractive new rates on the Risk Management Agency's Whole Farm Revenue Protection policies for 2016. He estimates premium costs to insure his entire farm's revenue would about match what he had been paying for his private tomato yield insurance coverage alone.

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"Ultimately, what a grower wants to protect is his total gross revenue," not just losses in individual crops, Millar said. As a former farm lender, he knows what counts most in qualifying for credit is repayment ability.

Whole Farm Revenue Protection (known as Adjusted Gross Revenue and Adjusted Gross Revenue-Lite in past iterations) guarantees up to 85% of your five-year average Schedule F income, or next year's projected income, whichever is less. For 2016, policies are available nationwide. Improvements include allowances for farms that have expanded up to 35% and recordkeeping aids to make current year revenue forecasts easier to comply. Producers with up to $1 million in expected revenue from livestock or animal products may also qualify. Total farm revenue from all sources may not exceed $10 million.

"It's not just specialty crop producers, but anyone with three or more enterprises who can benefit from the program," said Tyler Silveus, CEO of Silveus Insurance Group, Warsaw, Indiana. "Someone with corn, soybeans, seed corn, popcorn or wheat would be perfect." One of his diversified crop and egg producer clients found the policy appealing, because there's no insurance sold that can protect against revenue losses from bird flu.

Silveus calls the plan "unbelievably affordable," with more than $1 million of revenue coverage costing less than $10,000 in premiums. "That's half the price of similar corn policies with Revenue Protection," he added. "Definitely it is worth another look, because premiums are extremely subsidized."

Dean Benson, who oversees crop insurance for Northwest Farm Credit, has had a wealth of experience handling whole farm revenue policies. Initially, it was a popular program for perennial crops like apples in Farm Credit's Washington, Oregon, Idaho and Montana territory when it was called Adjusted Gross Income, he said. "Now with Whole Farm Revenue Protection, we're seeing applications for our wheat, barley and row-crop operators. There's value for everybody in covering income that is not necessarily covered well under traditional policies."

A few years ago, barley and wheat crops in the region suffered sprout at harvest. "Traditional policies just didn't adequately cover a reduction in revenue due to low quality. Whole farm does," he said. Plus, coverage is based on a farm's actual historical returns, Benson added, "not some number the feds pick or an average of someone else's numbers. If you normally sell at a better market or contract price, this product reflects your added revenue."

Keith Coble, a Mississippi State University economist and a consultant to the Senate Agriculture Committee for the 2014 farm bill, still has reservations about the whole-farm revenue concept. From a policy point of view, he worries they are difficult for loss adjusters to audit, since oversight requires "more forensic accounting skills" than agronomic skills.

Also, most farmers use Schedule F for cash accounting and tax purposes, so "you have to do a bunch of paperwork" to compute income, including taking inventories and fluctuations in farmed acreage into account, Coble cautioned.

From a grower's point of view, the individual is insuring revenue on a "bundle" of commodities, Coble said, so it's more like owning a mutual fund than an individual stock. Your revenue shouldn't fluctuate as widely, so you pay lower premiums for the insurance, but also have a reduced chance of collecting an indemnity. If you raise major crops and have good Revenue Protection options available for individual coverage, he recommends sticking with the sure thing.

However, if you're raising specialty crops that lack adequate revenue insurance, it can be worth considering. Unlike past crop insurance plans, Silveus stressed that this one insures real numbers from your farm, not an indexed figure. "With the lending environment tightening for the 2016 crop year, this policy could make a difference to you and your ag lender," he said.

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